IRS Requests Comments on New Credit for Contributions to Scholarship Granting Orgs

(Parker Tax Publishing December 2025)

The IRS announced that it intends to issue proposed regulations to implement new Code Sec. 25F, as added by the One Big Beautiful Bill Act, which provides a credit for an individual's qualified contribution to a scholarship granting organization that provides qualified elementary and secondary scholarships. The IRS requested comments regarding issues arising under Code Sec. 25F that should be addressed in guidance, emphasizing issues on which guidance is most quickly needed. Notice 2025-70.

Background

The One Big Beautiful Bill Act (OBBBA) added Code Sec. 25F to provide a nonrefundable income tax credit (Section 25F credit) for qualified contributions to scholarship granting organizations (SGOs) made by an individual who is a citizen or resident of the United States. Beginning January 1, 2027, individual taxpayers may claim a nonrefundable federal tax credit for up to $1,7000 of cash contributions to SGOs providing scholarships for elementary and secondary education expenses.

Under Code Sec. 25F(c)(3), a "qualified contribution" means a charitable contribution of cash to an SGO that uses the contribution to fund scholarships for eligible students (as defined in Code Sec. 25F(c)(2)) solely within the State in which the organization is listed pursuant to Code Sec. 25F(g). In order for a contribution to be a qualified contribution, the State must have voluntarily elected to participate under Code Sec. 25F and must have identified the SGO as one that satisfies the requirements of Code Sec. 25F(c)(5) for the applicable calendar year in accordance with Code Sec. 25F(g).

The amount of the Section 25F credit allowable to a taxpayer for a tax year is subject to two limitations in Code Sec. 25F(b). First, Code Sec. 25F(b)(1) provides that the amount of the Section 25F credit allowed to any taxpayer for any tax year may not exceed $1,700. Second, Code Sec. 25F(b)(2) provides that the Section 25F credit amount is reduced by the amount allowed as a credit on any State tax return of the taxpayer for qualified contributions made by the taxpayer during the tax year. In addition, Code Sec. 25F(e) prohibits a double benefit to a taxpayer by providing that any qualified contribution for which a Code Sec. 25F credit is allowed cannot be taken into account as a charitable contribution for purposes of Code Sec. 170.

Code Sec. 25F(f) provides for the carryforward of unused Section 25F credit amounts. Code Sec. 25F(f)(1) provides that, if the Section 25F credit allowable for any tax year exceeds the limitation imposed by Code Sec. 26(a) for such tax year reduced by the sum of the credits allowable under Code Secs. 21, 22, 24, 25, 25A, 25B, 25C, 25E, and 26, such excess is carried to the succeeding tax year and added to the credit allowable under Code Sec. 25F(a) for such tax year. In addition, Code Sec. 25F(f)(2) provides that no credit may be carried forward under Code Sec. 25F(f) to any tax year following the fifth tax year after the tax year in which the credit arose. For this purpose, Code Sec. 25F(f) provides that Section 25F credits are treated as used on a first-in, first-out basis.

The requirements for an organization to qualify as an SGO are provided in Code Sec. 25F(c)(5). To qualify as an SGO, the organization must (1) be described in Code Sec. 501(c)(3), be exempt under Code Sec. 501(a), and not be a private foundation; (2) prevent the co-mingling of qualified contributions with other amounts by maintaining separate accounts exclusively for qualified contributions; (3) satisfy each of the requirements of Code Sec. 25F(d); and be included on the list submitted for the applicable covered State under Code Sec. 25(g) for the applicable year.

Under Code Sec. 25F(g), a State that voluntarily elects to participate under Code Sec. 25F must provide to the Treasury Secretary of the Secretary's delegate a list of the SGOs that meet the requirements described in Code Sec. 25F(c)(5) and are located in the State by January 1 of each calendar year.

Notice 2025-70

On November 25, the IRS released Notice 2025-70 to announce that it intends to issue proposed regulations to implement Code Sec. 25F. The notice requests comments regarding issues arising under Code Sec. 25F that should be addressed in guidance, emphasizing issues on which guidance is most quickly needed, including issues relating to the annual certification by a State and SGO requirements.

Sections 3.02 and 3.03 of Notice 2025-70 describe the certification process currently envisioned by the IRS for covered States to elect to participate under Code Sec. 25F in accordance with Code Sec. 25F(g). Sections 3.04 through 3.06 of the notice set forth specific questions regarding particular aspects of the State certification process. Section 4 contains requests for comments regarding SGO requirements.

The IRS anticipates that the forthcoming proposed regulations would require each State electing to participate under Code Sec. 25F for the 2027 calendar year to submit to the IRS, by a specified date before January 1, 2027, the State's list of organizations located in that State meeting the requirements of Code Sec. 25F(c)(5) for the 2027 calendar year along with the State's certification under Code Sec. 25F(g)(2). The forthcoming proposed regulations would include a similar requirement for submission of an annual list and certification from each electing State for subsequent years. According to the IRS, SGOs may need sufficient time to prepare for the commencement of this new credit in 2027 and assurance that the State in which they are located will elect to participate under Code Sec. 25F. Accordingly, the IRS intends to issue future published guidance providing States with the option to submit, beginning in early 2026, the State election to participate under Code Sec. 25F for calendar year 2027.

The forthcoming proposed regulations are anticipated to provide that, if a donor makes a contribution to an organization that, at the time of the contribution, is on the list of organizations for that tax year, the donor would generally be treated as having made a contribution to an SGO for purposes of Code Sec. 25F. However, if the recipient organization is later determined not to qualify as an SGO, the IRS would not be precluded from disallowing a Code Sec. 25F credit for any contribution made to that organization if the donor either was aware of, or was responsible to any extent for, the activities or deficiencies that gave rise to the organization's eventual loss of SGO status.

The IRS interprets Code Sec. 25F(g) as requiring each covered State to verify that each organization on the State's list satisfies all of the requirements of Code Sec. 25F(c)(5). The IRS notes that organizations seeking to satisfy the requirements to be an SGO for purposes of Code Sec. 25F may be structured and/or operated in different ways. Specifically, some organizations may operate entirely within a single State, and some may raise funds and award scholarships to eligible students in a region consisting of multiple States. The forthcoming proposed regulations would require covered States to verify information about each of these types of organizations that qualify as an SGO. Reliance by a covered State on self-certifications by SGOs would not be sufficient for this purpose.

For a discussion the credit for qualifying contributions to a scholarship granting organization, see Parker Tax ¶103,501.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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